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In Case You Missed It: Business News Round-up

Contributed by Martin Mitchell of the Corporate Training Group.Martin Mitchel of CTG

The European Commission raised its forecast for European economic growth for 2010, while U.S. unemployment rose to 10.2% in October. These are but a few highlights of important market events that we’ve gathered to help you start the week well informed.

Economic Backdrop

  • The European Commission raised its forecast for European economic growth for 2010, but said the recovery from recession would come at the price of record budget deficits and public debt levels. After a slump of 4.1% in GDP this year, the 27-nation European Union is expected to grow by 0.7% next year and 1.6% in 2011.
  • Manufacturers reported that output around the world was rising at the fastest rate in five years in October. The JPMorgan global composite purchasing managers’ index rose to 54.4, up from 53 in September, the highest value since July 2004. In the U.S., the Institute for Supply Management’s factory index rose to 55.7 from 52.6 in September.
  • U.S. unemployment rose to 10.2% in October, its highest rate since 1983. President Obama called it a ‘sobering number that underscores the economic challenge ahead’.

Mergers and Acquisitions

  • Warren Buffett’s Berkshire Hathaway agreed to a $26.6bn purchase of Burlington Northern Santa Fe (BNSF), one of the largest U.S. railroad operators. Berkshire Hathaway already owned 22.6% of BNSF and will pay a 31.5% premium to BNSF’s share price before the announcement. BNSF was advised by Evercore Partners and Goldman Sachs.
  • The biggest leveraged buy-out of the year was announced. TPG Capital and Canada Pension Plan will buy IMS Health, a provider of prescription drug data, for $5.2bn.
  • General Motors shocked the German government by deciding against the sale of its Opel and Vauxhall units to Magna International and Sberbank. GM will present an alternative restructuring plan to Germany and other European countries where Opel/Vauxhall has operations, including the UK.
  • Kraft disappointed with its third quarter results. It is considering making a formal bid for Cadbury before a Takeover Panel deadline of November 9th. Its informal approach was valued at around 745p per Cadbury share and was rejected by Cadbury’s board in August. Analysts had hoped that strong results and an increased Kraft share price could facilitate a bid of 800p to 850p.
  • U.K.-based financial information provider Markit has acquired ClearPar of the U.S. to create a platform that will allow investors and banks to electronically process loan trades from start to finish. The loans market is expected to grow from current levels that are already substantial – estimated at $132bn in North America and €20bn in Europe in the second quarter of 2009. However, the market’s infrastructure is not sophisticated with European loan trades taking on average up to 40 days to settle.
  • Oil and gas company Dragon Oil has received on offer from Dubai’s Emirates National Oil Company (ENOC) that values the company at $2.36bn. ENOC already owns 52% of Dragon and has launched the take-out bid at a 35% premium to Dragon’s closing price on 3rd June, the day before the approach.
  • The U.K. television company ITV has hit a snag in relation to its plan to sell the Friends Reunited website business for £25m to Brightsolid, a division of DC Thomson & Co. The Office of Fair Trading has referred the sale to the Competition Commission on the basis of the damage it could bring about to the online genealogy market. Brightsolid already owns 1911census.co.uk and FindMyPast.com.

Financial Institutions

  • Goldman Sachs traders have managed to generate more than $100m in profits on 36 days out of the 65 days in the third quarter. The firm recorded a trading loss on just one day in the quarter.
  • JPMorgan Chase will pay $75m and forfeit claims on nearly $650m to settle allegations that the bank and two former employees paid friends of political officials to win municipal financing business in Alabama.
  • Barclays announced a board shake up that will see Frits Seegers, the former head of retail and commercial banking, leave. Bob Diamond will take control of corporate banking in addition to Barclays Capital and Antony Jenkins has been promoted to lead the newly created global retail banking business.
  • UBS reported a third quarter loss of SFr564m as its private banking operations continued to haemorrhage funds. Swiss and international clients withdrew a net SFr16.7bn whilst U.S. customers withdrew a further net Sfr9.9bn.
  • Later in the week, the FSA, the U.K. financial regulator, announced an £8m fine for UBS. The fine was for a small group of employees taking advantage of lax controls to put through up to 50 unauthorised trades per day in the 2006/7 period. The traders allocated loss making trades to customers. In addition to the fine, UBS has already paid £26m in restitution to the customers that were impacted.
  • Credit Suisse’s CEO Brady Dougan indicated that the bank was considering acquisitions in private banking and asset management as it looks to solidify its top tier position after coming through the financial crisis in better shape than most of its rivals.
  • The E.U. has determined that U.K. banks Lloyds Banking Group and RBS should pay the price for government help by making significant disposals. Lloyds is likely to sell Cheltenham & Gloucester, the Lloyds TSB branches in Scotland and Intelligent Finance. RBS is likely to sell a chunk of its business banking, its insurance arm and possibly some investment banking operations. In order to see a more competitive banking industry, only banks with a relatively small market share will be allowed to bid.
  • Lloyds Banking Group unveiled a £25bn recapitalisation programme. Alongside a £13.5bn deeply discounted rights issue, Lloyds is aiming to raise £7.5bn of contingent convertibles. These ‘Cocos’ are bonds that will count towards tier one capital because they will convert into equity in a stress scenario. The stress scenario is expected to be Lloyds’ core tier one ratio falling below 6%. The capital raising will allow Lloyds to break free from the U.K. government’s asset protection scheme.
  • RBS will rely on the U.K. government to inject a further £25bn of new capital and a further £8bn of ‘contingent equity’ that will only be required if RBS’s core tier one capital falls to 5% or less.
  • RBS’s third quarter results showed a pre-tax loss of £2.2bn. The bank also unveiled details of its entry into the U.K. government’s asset protection scheme. It will put £243bn of assets into the scheme.
  • AIG, the insurer that is 80% owned by the U.S. government, announced a third quarter after-tax profit of $455m. However, the positive result was largely due to $1.9bn in accounting gains on the toxic assets in AIG’s Financial Products division.
  • Tyrus Capital, a hedge fund that will specialise in event driven strategies such as making money from rights issues, mergers or management changes, raised more than $800m from investors.

Credit

  • The Bank of England is set to pump a further £25bn into the economy under its quantitative easing programme. This is thought to be the final injection from the bank and takes the total to £200bn.
  • The U.S. Treasury announced that it will sell a record $81bn of government debt next week – $40bn of three-year notes, $25bn of 10-year notes and $16bn of 30-year bonds.
  • Private equity owned drug retailer Alliance Boots has bought back debt with a face value of £558m for £324m cash since the beginning of 2009.

Other

  • The U.S. crackdown on insider trading that started with billionaire investor Raj Rajaratnam three weeks ago was widened. 14 further individuals including hedge fund managers, traders and attorneys were charged with involvement in an insider trading network, passing on information about pending takeovers involving private equity firms before they were made public.
  • New York Attorney General Andrew Cuomo has filed an antitrust complaint against chipmaker Intel. The complaint follows a private antitrust suit bought by rival AMD, and alleges Intel used bribery and coercion to maintain its dominant market position.
  • Bernard Madoff’s auditor David Friehling pleaded guilty to securities fraud and filing false audit reports. He faces up to 114 years in prison, but is co-operating with prosecutors in the hope of receiving a lesser sentence.
  • China’s equity volatility was on display. After the launch of Chinext, the market for small technology companies, the 28 stocks listed rose between 76% and 210% last Friday, the market’s first day of trading. On Monday 20 of the 28 stocks fell by their 10% daily limit.
  • The value of shares traded through ‘dark pools’ in Europe rose from €2.2bn in January to €9.5bn in October. However, this only amounted to 1.2% of all share trading in Europe in October.

Note: The details contained in this article have been drawn from a daily review of the Financial Times.

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